Hi again Jim. :)
It is extraordinary to me how the Fed and Central Banks globally have engineered a global flight "from" liquidity. Sort of the liquidity equivalent of Faber's "flight to garbage" in financial assets.
Driving interest rates down to negative real levels has prompted a global search for yield as savers (where they exist!) in developed world economies have been driven to assume greater risk (often unknowingly) in an attempt to fund their retirement, and assume increased debt burdens in an effort to meet existing financial obligations.
The most extraordinary element of this whole episode, however, has to be the "illusion" that individual wealth is increasing. To my mind, it is very obvious the degree to which this illusion has been created by unsustainably high debt, and unsustainably low interest rates.
This has all the making of a financial accident of historical proportions (BTW, I appreciate I am preaching to the converted here (smile)).
3 key factors I would highlight in this monetary madness:
1 - the "sociology of ownership" of medium- and long-term debt, particularly U.S. treasury debt;
2 - the latent structural illiquidity in long-term debt markets, most particularly the U.S. GSE and Treasury markets; and
3 - changing geopolitical power balances among global elites which will inevitably see the day come where the emperor is seen to have "no clothes", and the illiquidity shock comes crushing down.
As long as the global elites can maintain a concensus to prop up the existing global economic system, then the inevitable can be forestalled. Effectively, to my mind, the global elite consensus is to let the U.S. live far above its means, for a variety of reasons. But someone is paying for this excess. And for now they, or their leaders, elect to continue to support this excess. But there WILL come a day, when they no longer are willing to back this arrangement. And to my mind, there will be NO soft landing for this eventuality.
Have some comments for Russ also, but will reply to him directly.
We see things similarily you figure?
Best wishes,
Glenn |
